Productivity commission inquiry into intellectual property arrangements mr j coppel, C
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- MS BURLAND
- MS BURLAND: Yes. MS CHESTER
- MS CHESTER
- MR COPPEL
- MS CHESTER: Yes. MR COPPEL
- MS CHESTER: Okay. MS BURLAND
- MS BURLAND: Yes. MR COPPEL
- MS LEWIS
- MR HAMER
UNIDENTIFIED SPEAKER: Thank you. MS CHESTER: The government’s response to Harper was they’re minded to remove parallel import restrictions but wanted the Productivity Commission to look into and advise on transitional issues, which is very much the focus of our draft report. While you’re right, Julie, in saying that our draft report didn’t replicate the pricing analysis that we did in 2009, our draft report did actually provide some commentary narrative using high-level statistics on developments since 2009 to inform where we landed. So we did note that a confluence of events have occurred. Prices for Australian books have come down materially since that time. The industry, through its own proactive initiatives, are mindful the government at any time could reconsider parallel import restrictions to go for the new 14-day code of conduct arrangement of getting books to booksellers. We looked at sort of a suite of transitional issues then in terms of what had changed, so prices having come down, where the Australian dollar is today, recent reviews of the robust anti-dumping arrangements that we have in Australia. I think that that all made us view that the transitional issues that would have been present in 2009, aren’t present to the same degree today. That said, we are very mindful that industry is a bit concerned that we haven’t updated our pricing data and we’ve had some partial pricing data from the industry which suggests that prices now are very competitive globally, Australia versus US and Europe, and so we will be looking at updating that data for our final report. Just coming back to the point though then on the transitional issues, I guess my first question would be, apart from those transitional issues that I’ve just mentioned, are there any others that we haven’t identified in the report that we should have? MS BURLAND: As in? MS CHESTER: I’ve identified a bunch of factors that we think were important as the backdrop to considering what transitional issues might be faced by the industry. Are there any other issues. MS BURLAND: Well I think the subsidy. I mean it’s been recognised but I also think the subsidy is an issue as well, how much money we invest in local writing, local investment, local marketing publicity and how will the government - as we’ve heard from other people, we’re having cuts in arts, so how will you really actually fund what we do? Like you may fund an author but how do you also fund the publisher, because it takes an author and a publisher to make a book. A book just doesn’t just arrive to us made. So how would you, fully ready to go, how would you do the funding? I know you mentioned that it would have to happen but in reality, how does that funding actually take place. MS CHESTER: I guess what we’re suggesting is, given the industry’s now asserting that it’s become lean, mean and competitive and it’s competitive on pricing terms. We wouldn’t see that there would be a flood of imported books into the Australian market vis a vis what could have been expected in 2009. I think, Julie, you might have been here a little bit earlier when we heard evidence from Peter Donoughue, a retired publisher, who painted a very different scenario of what he would expect might happen within the publishing industry post removal of parallel import restrictions. MS BURLAND: Yes. MS CHESTER: He didn’t paint the sort of doom and gloom scenario that yourselves and others are suggesting. MS BURLAND: I mean I don’t know when Peter retired but the publishing industry has changed dramatically since I have been in it in the last 15 years. It’s changed very dramatically. The risk that there is to how global we are now, I mean we just had an example this week of Tim Winton, one of our leading authors, a book was available from him in a store here in Melbourne. It had come in because it had been remaindered in the UK and there is one of our bestselling authors sitting in a store for $10 because it’s remaindered by somebody. That means that there’s absolutely no income for Tim at all because on a remainder sale you don’t get any income. I mean just seeing that is just an impact because these books will make their way in and that was coming through a remainder merchant. At the moment we can call the store up and take action on that but in future you’ll have bestselling award winning authors, you’ll have checked copies in stores. MS CHESTER: If we just maybe set aside the issue of remainders for a moment and we’ll come back to remainders and dumping. MS BURLAND: Yes. MS CHESTER: If the industry today now is price competitive and you do have the advantage of the differential transportation costs of getting books to Australia, why is it that you think there’s going to be a flood of imported books with the removal of parallel import restrictions, if you have become competitive on a pricing basis? MS BURLAND: I still think it goes around to - all we’re doing with this is actually making the US wholesalers stronger and that they may be able to negotiate good terms because they do buy off a bigger publisher than we are in the US or the UK. I mean it would probably more so be the US, and so they might buy something on great terms. Again, this is going to be overstocks and remainders as well. They’ll be sitting with a whole lot of stock there and they’ll be selling it back into the market cheaply, and so we won’t be able to take the risk on publishing a book. It won’t be the bestsellers because they probably would take that risk. It will be the new writers that suffer the most because we will be seeing - we won’t be able to make the sales, the right sales, or anything like that, because we will be worried about those books entering the market again. MS CHESTER: In a scenario where remainders came in or books - so just with remainders and sells, when they come in, are you suggesting that they’re sort of at below cost when they’re sent to countries where there aren’t parallel import restrictions? MS BURLAND: Remainders, yes. They’re coming in at whatever price the wholesaler wants to sell them to. I guess they’ve got to just have a look at what they’ve bought them for which tends to be very cheap. I mean the example that I’ve got is actually the UK, they do export. They do airside trade paperbacks. They don’t put it into their own market. They just airport trade paperbacks and then they sell those to people who are actually leaving the country. They don’t put them into their bookshops and so all of a sudden these editions are entering our market, editions that they wouldn’t actually put into their own market. So I think that’s a telling thing. MR COPPEL: These are sold in airport shops; is that so? MS BURLAND: We call it “airside”. They sell them airside, yes. MR COPPEL: What is it that is about a remaindered book that removes the royalty payment to the author? MS BURLAND: The contract. In the contract that we don’t pay royalties on remainder sales. MR COPPEL: What then determines classification of being remaindered or not remaindered? From the picture you’re painting, it seems very easy just to classify a book as a remaindered book. MS BURLAND: If the publisher has an overstock, it will be classified as a remainder and they sell at a certain price. It will be classified as a remainder and so no income will go to the author. MR COPPEL: We haven’t heard from any authors, other than the connection or parallel import restrictions of that is an issue which is a bit surprising because it doesn’t sound too complicated to classify something as a remaindered book. MS LEWIS: I think what happens in reality is that if in an environment of no parallel importation, books are released simultaneously or “in a foreign jurisdiction or close to the (inaudible) release”. The foreign publishers again, economies of scale, large print runs, give it a punt on the basis of sales that have happened in Australia, on the basis of marketing and other activities that are happening in Australia. If it doesn’t sell in the foreign jurisdiction, they can ship it back here very cheaply at a remaindered rate. MS CHESTER: Okay. So what’s the percentage of say books sold in Australia today that would be remaindered books? MS BURLAND: I don’t know that. We can find that out for you. MS CHESTER: It would be good to know what it is sort of internationally. Do you know what the percentage of remaindered books are in the US? MS BURLAND: It’s more of a bookseller question. MS CHESTER: Yes. MR COPPEL: What about remaindered books by Penguin. MS BURLAND: Yes, we sell when we have overstocks. Yes, we do. MS CHESTER: What percentage of your annual sales? Maybe it would be best to look at it in terms of the number of books Penguin sells in Australia each year. What percentage of them are remainders? MS BURLAND: I would have to get that information. MS CHESTER: Okay. Can you get that information for Penguin globally? MS BURLAND: I will try, yes. MS CHESTER: That would be helpful. You mentioned, Julie, and other publishers have as well, and we understood sort of the book ecosystem of the local author, the local bookseller and the local publisher and we do understand that that’s an important relationship. How does that relationship differ in a business model sense for Penguin Random House globally? Is it unique here in Australia in terms of what you do with your advances, your royalty payments, your treatment of remainders, your ability to take back unsold books from booksellers? Is that not replicated anywhere else globally? MS BURLAND: We run very independently of our parent companies in the US and the UK and so we have the relationship deal with the booksellers and the authors. So we have a relationship. Our UK and US companies don’t have the relationship with our authors and our booksellers. MS CHESTER: Yes. So how do authors get by then in the UK and the US if they don’t have that sort of relationship that authors have down under? MS BURLAND: Are you talking about an Australian author? MS CHESTER: Yes. I’m just trying to work out whether the Australian business model across the three is unique and, if so, why. Then secondly, if it’s not replicated in the UK and the US, how do local authors there MS BURLAND: Well local authors would have the same model. So local authors in the UK would have the same models with the booksellers and the authors as well, but with an Australian author, obviously the home, we’ve nurtured that author. The closer relationship is here and then you’ve been able to get the author out into the stores, work with the booksellers, et cetera. But just because a book is published Penguin Random House Australia, doesn’t mean it’s published by Penguin Random House UK and US. MS CHESTER: Yes. I was talking about the local authors in those jurisdictions. So Penguin Random House in the US with the local authors in the US would have the same sort of business model with royalties, advances, taking back unsold books and remainders? MS BURLAND: Yes. MS CHESTER: Okay. We’ve heard evidence that in the US, effectively there are no longer parallel import restrictions. I know it’s not exactly a like comparison because they have the right of original sale, but given Court interpretations there now, and as we’ve heard from submissions and other evidence, that effectively they don’t have parallel import restrictions. Yet that business model of author, publisher and bookseller is still in place. MS LEWIS: I just think you cannot compare an Australian market to the US market just due to size. I mean it’s the very reason why we need the current system to be maintained. America does not need these sort of legislative provisions in place just due to their actual size. I mean in and of itself that’s how they operate and they don’t need these sort of things. We are a completely different market and we’re a completely different size and that’s why we do. MS CHESTER: Okay. MS BURLAND: Sixty per cent of Penguin Random House business is international books and 40 per cent is local, so you’ve got to protect that smaller percentage, where over there it’s just 100 per cent is theirs. MS CHESTER: I guess if you’re price competitive now, where’s the protection? Do you see what I mean? MS LEWIS: It is because of the current - I suppose what we’re struggling with, to be honest, is that it doesn’t seem that logical to have a system that’s working where there is high availability, high diversity and low prices and then to use that as a reason to get rid of that system. MS CHESTER: Yes. I guess it’s kind of central to competition policy that contestability is very fundamental. So while the industry has come a long way in six, seven years, which we identify in our report, the only way that we would know that the industry would stay that competitive over time would be if there was that sort of level of contestability through the potential for parallel imports to come in. MS LEWIS: There is contestability in our view due to things like the Amazon effect. I mean that does keep us honest. We are driven by consumers and consumer demand and that is also why, to be honest, we don’t rely on provisions like this in the Act in order to improve our business model. We have clearly efficiency drivers, including what consumers demand. We all live in the world and we all live in the world of Game of Thrones where things are required that very same day and that’s how we operate and that’s why we’ve improved. MS CHESTER: Julie, you touched on the New Zealand experience for Penguin Random House. MS BURLAND: Yes. MS CHESTER: It would be great if you could just talk us through the timelines for those structural changes, noting that the parallel import restrictions were removed in 1998 and what were some of the other factors, really the economics of what was happening in the New Zealand market and globally for the costs of publishing and other competitive forces? MS BURLAND: In 2003, we closed the - we’re a merged company now for Penguin Random House. We closed one of our warehouses and last year we closed the other, but it has been a big impact in terms of what they actually publish locally. MS CHESTER: Sorry, so the 2003 closure of an initial warehouse was because of a merger. MS BURLAND: No, no, sorry. We were running our businesses separately before 2013. So in 2003 we had an instant reaction and we closed one of the warehouses. The amount of local publishing has dramatically increased. You go into New Zealand stores and you can see that there are American and UK books in stores. I mean they’ve had the digital and so we have we. We’ve had the digital. They actually went into a recession. We had the GFC. When you look at the pricing as well, our pricing has dropped more than their pricing. So even though it is an open market, our pricing hasn’t managed to drop more, so our system is obviously working, where they have had a bit of a drop but yet their availability has absolutely shrunk. PIR removal has not worked for them and I think that’s just such a risk to think that that could happen to this industry and to think that our local publishing list could drop by 75 per cent and not see some of the Australian. I think, in particular, children’s authors would be impacted by that. When I look at our New Zealand publishing list, we hardly publish any children’s books any more. The thought of our children not reading children’s books would be heartbreaking. They’ve gone through everything we’ve gone through. MS CHESTER: Maybe if we could just go through the timelines again. So when parallel import restrictions were removed there in ’98, there were no other sort of structural changes until 2003? MS BURLAND: No, we did have some shrinking of our workforce at that stage. MS CHESTER: When you mentioned that the local content or the availability of local content in New Zealand had changed over that timeframe, when did that change occur and from what to what? MS BURLAND: I’ve got from 2007 we had 350 local titles that we published and we now publish something local 70 local titles a year. So that just shows you the amount - - - MS CHESTER: What was it back in 1998 though? MS BURLAND: I don’t know 1998. We actually tried to find that out but we couldn’t get that. MS CHESTER: I think that’s probably the useful reference point for us because doing it nine or 10 years after that to then three years after, there’s a lot of factors. MS BURLAND: Yes. I can tell you the workforce has dramatically decreased since then, the size of the offices that we’ve had have dramatically decreased after that. Even you when you look at that they lost Red Group, we lost Red Group. Everything has been the same in both markets and it’s interesting to see which market has survived and stayed strong. MS CHESTER: Yes. MR COPPEL: You mentioned also that prices for books dropped in Australia more than they did in New Zealand. MS BURLAND: Yes. MR COPPEL: Is that also true for Penguin Random House books sold in New Zealand, that there was a difference between the Australian market and the New Zealand market? MS BURLAND: Yes. MR COPPEL: Could you then talk us through how you determine the recommended retail price of a book? MS BURLAND: We’ve got financial modelling. We have to work out margins that we need to keep the doors open and exist. So we do a lot of financial modelling on that but we also have to make sure we look at our competitors and what the competitors are doing. That’s our local competitors but also our international, the Amazons and all that. So we go through a big process of looking at what the price is internationally versus what the prices are in the local market. But more so now, we have to look at what’s being charged internationally. We can work that out. With New Zealand, the economies of scale just aren’t there for them with the pricing. So we have to look at the pricing that’s out in the marketplace as well. MS LEWIS: Combine with that a removal of a very limited territorial copyright, then it just reduces the investment certainty again. MS BURLAND: Yes, because we have to pay bills. We have to keep things open, and this is why, as I said before, international books do actually cover some of our local investment, and so that’s a big factor as well. We do very well with our international books and then we have to make sure because of the risk, all the risk we take in the local books, and to keep the local sector vibrant, we do cover some of our expense there as well. MR COPPEL: So if in an international price, in a sense you’re saying that there’s sort of less market power in New Zealand than there is in Australia because of the smaller size of the market, maybe the cost of a direct import is higher than it would be for someone purchasing a direct import online book in Australia. So you price to market essentially is what you’re saying? MS LEWIS: That’s one factor. MS BURLAND: Yes, one factor. We’ve got other factors. MR COPPEL: Have those factors changed over time? MS BURLAND: Yes. Now that consumers can get books from Amazon so quickly, we have had to change the factors, very much so, and just our cost bases as well. MR COPPEL: In your submission you give evidence on the price of books in Australia and other international markets where I think you’ve taken a list of 150 books. Is that data something that you can share with us? MS BURLAND: Yes, did we not? MR COPPEL: I think we’ve got the results but is it possible to share the actual titles that you’ve used, how you’ve determined those titles. MS BURLAND: We used our bestseller list there. MS LEWIS: We can provide that. MR COPPEL: Yes, thank you. MS CHESTER: Okay. Thank you very much. I think that covers the questions that we have for you this afternoon. MS BURLAND: Thank you. MS CHESTER: Thanks, Julie. Thanks, Briony. I’d like to call our next participant, Richard Hamer, from the Law Council of Australia. Welcome, Richard, and thank you very much for the initial and post draft report submissions that we’ve received from you. We’ve also met with some of your other colleagues earlier in the public hearings. MR HAMER: Yes, I understand that. MS CHESTER: If you could just state your name, which organisation you represent, for the purposes of the transcript recording, and then if you’d like to make some brief opening remarks. Imagine I’ve got a debating bell and I’m going to ring it at five minutes, if you wouldn’t mind. MR HAMER: Sure. My name is Richard Hamer. I’m representing the Law Council of Australia. MS CHESTER: If you’d like to make your brief opening remarks. Thank you. MR HAMER: Sure. We’re in a slightly different position, I think, from a lot of the people who have come to this inquiry in that we support quite a number of your recommendations and we certainly support the approach that has been outlined of recommending policy changes based on a careful analysis of the actual evidence. I did want to make a couple of overarching comments really, rather than get into the detail, because we’ve I think filed some probably 80 pages of submissions dealing with a lot of detail. I’m happy to answer questions, if I can, but the overarching points where I think where I see some weakness in the report which could be I think dealt with. The first is that a lot of the underlying analysis is directed to whether intellectual property rights result in innovation and so the assessment is to what extent has the existing intellectual property right caused innovation to occur. I’ll explain why we can say something about this as lawyers in a minute, but it seems to us that there is a fundamental problem with that. It’s a bit like saying a property in land is conferred in order to cause people to create land. If you do a study into that you’ll find that actually very occasionally people reclaim some land but basically land is not created because there’s property rights in land; rather, the property right in land is primarily conferred in order to enable people to build on the land and can carry out transactions with it. Similarly in the case of intellectual property, our experience is that it is all about the - it’s partly about certainly development of intellectual property in the first place. A large part of it, 99 per cent, is about the development and commercialisation of that intellectual property. So as lawyers we see every day people engaging in financing transactions starting from angel investors through private equity, through venture capitalists, stock exchange floats, where a primary question that is always asked is what is the intellectual property, what is its term, what is its validity. That’s something that’s essential to investors and without that intellectual property, the idea, the innovation, never goes anywhere. It seems to be a critical matter that the report should consider not only is intellectual property causing the innovation to be made but what is the impact of intellectual property on its development and marketing. That seems to be a key issue. We were conscious that there were very limited studies on this and some of the studies just didn’t seem to demonstrate what the report concludes from them. For example, there was reports that in many industries people were not particularly concerned about intellectual property and that was taken as supporting the view that intellectual property was not important to innovation in those industries. It’s not really a logical conclusion because there are many industries where people are making commodities; they’re making generic products where they’re not concerned with innovation. They’re concerned obviously to cut costs and IP is to them a nuisance. If you’re looking at the people who are innovating, the IP is of great importance to them, or that’s been our experience and observation. I have some other comments but in light of the timing I’ll reduce them. The second overarching matter was I think also important and that is that in the report there are some general recommendations and there are some quite detailed recommendations. There’s detailed recommendations about what the obviousness test should be in patent law going down to the legislative drafting. It does seem to us that that’s not an appropriate way to proceed, that whether you apply an administrative test that is used in the European Union and say we should make that part of Australian legislation, is something which I think is not an appropriate way for the Productivity Commission to proceed, rather it would be appropriate to set out some principles that this should be evaluated and have it evaluated by a body which can look at it in the context of the overall legislative scheme. So it seemed to us that that was a sort of fundamental issue that closed through quite a number of the recommendations and we’ve dealt with that in the report. They were the two overarching issues I wanted to talk about but in that context I’m happy to talk about any of the pages of submissions that we’re putting in if I can. Directory: inquiries -> completed completed -> Productivity Commission: Childcare and Early Childhood Learning completed -> Some comparisons on overseas Internet purchasing Australia and other countries, most commonly the usa completed -> Access to Justice Productivity Commission completed -> University education completed -> Integrated care Download 0.66 Mb. Share with your friends:
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